The Partner Tax

What’s $60,000 when you’re making millions? Enough to resent.

Two weeks ago, Manhattan law firm Simpson Thacher & Bartlett bumped first-year associates’ base salaries to $160,000—up from $145,000 (which had been raised from $125,000 last year). Within 48 hours, A-list firms like Willkie Farr & Gallagher and Paul, Weiss, Rifkind, Wharton & Garrison announced they were matching. Associates were thrilled: “I may have sold my soul, but it’s good to know that my soul is worth $15K more than it was yesterday,” said one (who asked not to be named). Another remarked, “Now I can afford the life I was already living!” Less excited, however, were partners at competing firms, since the raises come out of their pockets. Based on available data for per-partner profits and firm gross revenue, and taking into account a billing-rate increase, it’s estimated that at a big firm like Simpson (which has about 500 associates and 155 partners), average per-partner profits run about $2.4 million a year. To pay for this raise, each partner will take an approximate personal hit of $40,000 to $70,000 a year. “It’s horrible,” said one partner at a big firm. So why would Simpson’s partners subject themselves to the personal loss? Pete Ruegger, Simpson’s chairman, said, “We’re sure we’re not having more retention issues than other big firms.” (Investment banks often pay more for the same hours.) And not all partners were devastated by the large hit, said Jack Nusbaum, chairman of Willkie Farr & Gallagher. “No expense is good news, but we’re not resentful. We expect our associates to work hard, but maybe this will make them feel better about the Saturdays and Sundays.”